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The Role of the Forensic Accountant in Trust and Estate Matters

In today’s environment, fraud is increasing at an alarming rate. Therefore, litigation in trust and estate matters, where beneficiaries place their faith in the hands of trustees, continues to rise. This trust relationship imposes fiduciary duties upon the trustee; however, not all trustees act in the best interest of their beneficiaries. The use of forensic accounting is critical when beneficiaries suspect their trust’s assets are mismanaged or misappropriated. In this article, I explain how a forensic accountant can assist in the pre-litigation phase and during litigation in trust and estate matters. Additionally, I provide an example of the successful use of a forensic accountant in a litigation matter.

The  Pre-Litigation Role of the Forensic Accountant

Trust and estate disputes typically occur when one or more beneficiaries, often family members, believe the trustee or executor is mishandling finances, is misappropriating funds, or is improperly distributing assets.  When beneficiaries suspect such activities, they should hire a forensic accountant to analyze the management and/or administration of the trust or estate and to account for the assets and suspicious transactions. Some of the services that a forensic accountant can provide include investigating alleged fraudulent conduct or compliance with the terms of the trust, and verifying trust and estate assets.   Moreover, a fair and unbiased forensic accountant can help settle the dispute before litigation begins.

The Role of the Forensic Accountant During Litigation

A forensic accountant can assist an attorney as follows:

  • Provide discovery assistance (i.e., assist with requesting specific information from the parties). This includes assessing the quality of the documents to determine whether they are relevant to the matter at hand.  Additionally, a forensic accountant can assist in interviews which aid in planning and executing of data collection.
  • Data collection and analysis – accumulate the data and perform the necessary analytical tasks to either support or refute the legal theories presented.
  • Prepare an expert report – develop a detailed analysis and report that communicates the appropriate findings and conclusions. If requested by the attorney, the forensic accountant can also critique the opposing expert’s report.
  • Expert testimony – testify in depositions, trial or arbitration.

Case Study

In a recent litigation matter in Manhattan Surrogate Court, a home healthcare aide (“Respondent”) took advantage of an elderly woman with dementia.  He persuaded the woman to make him a joint owner and beneficiary on her bank and investment accounts .  In total, the Respondent gained access to fifteen bank and investment accounts valued at close to $5 million.  After the woman passed away, he transferred the proceeds to his personal accounts.   Preliminary Executors appointed by the Court, filed a Motion seeking turnover of the decedent’s assets from the Respondent.   At trial, the Respondent justified his actions, stating that he had taken care of this woman for years and was never  paid a salary.  However, review of the woman’s banking records proved that he wrote a bi-weekly check to himself during this time period.  The Respondent then changed his story and stated that these payments were not salary but rather, the checks were  cashed to pay the woman’s household expenses.   The forensic analysis of the woman’s credit card and banking records showed that most of her household expenses were paid via debit purchases and credit cards. The Respondent could not refute this evidence.

At trial, the forensic accountant prepared flowcharts for each of the bank and investment accounts that clearly showed the flow of funds from the elderly woman’s accounts into the Respondent’s accounts,  even after she passed away.  Relying on this information, the Surrogate Court Judge enjoined the Respondent from withdrawing, transferring, encumbering or otherwise disposing of the woman’s assets.  Further, the Judge  directed the Respondent to instruct the financial institutions holding such assets to recognize the co-management, investment and re-investment authority of the Preliminary Executors.

In conclusion, with the increase in fraud in trust and estate matters, forensic accountants are needed to analyze, interpret, summarize and present complex financial issues in a manner that is both understandable and supportable.  Moreover, before disputes become contentious and expensive, an independent forensic accountant can be retained to help settle the matter before it gets to litigation.

Republished with permission from Westchester Lawyer Magazine.

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